Upper Tribunal rules in favour of TPR in anti-avoidance case against ITV
Friday 18 May 2018
The Upper Tribunal has confirmed that The Pensions Regulator (TPR) was right to use its powers to seek financial support from ITV for members of the Box Clever pension scheme.
Published today, the judgment follows a two-week hearing in January of the substantive issues in the case – the first anti-avoidance case by TPR to be heard in full by the tribunal.
The court found that TPR was right to pursue the use of its Financial Support Direction (FSD) power against ITV to require it to provide support for the Box Clever scheme, which has 2,800 members and a deficit of c.£115 million.
Mike Birch, TPR’s Director of Case Management, said: "We are very pleased with this ruling which sends a clear message to companies linked with defined benefit pension schemes that we will not hesitate to use our anti-avoidance powers where we believe it is reasonable for them to provide financial support. We will pursue these cases for as long as necessary to protect pension savers and the Pension Protection Fund.
“This has been a long and complex case, where the targets have raised numerous legal challenges causing significant delays in an outcome being reached. We now hope that ITV will accept the Upper Tribunal’s findings and seek to work with TPR to put in place appropriate financial support for the scheme and deliver a good outcome for members.”
Box Clever was formed in 2000 as a joint venture between the TV rental businesses of Granada (now ITV) and Thorn (now Carmelite). Respective employees were transferred to the new company and enrolled in the Box Clever pension scheme.
TPR opened an anti-avoidance investigation following the collapse of Box Clever. Prior to the collapse, ITV extracted significant value from the joint venture.
The Tribunal ruled that it is reasonable for ITV to provide financial support for the scheme in the circumstances of this case. The judges held that:
“By their choice of structure for the Joint Venture, the Shareholders extracted considerable cash from the business with no risk of recourse to their assets. They retained an ongoing interest in the merged business with the possibility of further value being generated if the business was successful, but without having to bear any responsibility if the business, whose strategy they continued to determine, subsequently failed.”
ITV has 14 days to seek permission to appeal the Tribunal’s decision. If there is no appeal, TPR’s Determinations Panel will issue Financial Support Directions to ITV.
The Tribunal’s judgment also clarifies a number of points of law regarding how and when TPR can use its FSD powers. In particular, the Tribunal agreed with TPR’s position on the following:
- Retrospective use – The purpose of the FSD regime is to provide a rescue framework for pension schemes in deficit. TPR could not meet its objectives if it could not take into account events which occurred prior to the Pensions Act 2004 coming into force – for example, many scheme and company structures were created prior to 2004.
- Fault – The regime is not fault based and so does not require criticism or blame to be found against the targets for their conduct in respect of the pension scheme. It is instead a regime based on responsibility – in this case the targets chose the structure of the joint venture and should therefore bear appropriate responsibility for the risks.
- Reasonableness – This is assessed by balancing all the relevant facts to reach a conclusion, with the relationship between the targets and the pension scheme as the starting point. When making this assessment terms from the legislation such as “benefit”, “relationship with the employer” and “involvement with the scheme” should be given a wide interpretation. An FSD may still be issued against a target even if it has not received any substantial benefit from its relationship with the pension scheme’s sponsoring employer, although in this case the Tribunal found that ITV had received valuable benefit from the creation of the employer.
- While the January 2018 hearing was the first hearing before the Upper Tribunal of the substantive issues in an anti-avoidance case, there have been other referrals to the Upper Tribunal which have concluded through settlement prior to any substantive hearing taking place.
- In 2011, TPR issued a determination notice outlining why it was reasonable to issue FSDs to five companies that formed part of the ITV Group. A FSD requires its target to propose how they will financially support the scheme. For example, the target could assume responsibility for the employer’s liabilities to the scheme or make a lump sum cash payment into the scheme. If TPR considers that the proposal is reasonable it will issue a notice approving the arrangements.
- ITV originally referred the case to the Upper Tribunal in January 2012 to challenge TPR’s determination to issue FSDs and began its further challenge of TPR’s ability to submit additional evidence in late 2013.
- A number of hearings followed, including an appeal to the Court of Appeal (and an unsuccessful application for permission to appeal to the Supreme Court), before the Upper Tribunal found in TPR’s favour on the additional evidence challenge in 2016. ITV then made subsequent requests for permission to appeal with the most recent application being refused by the Rt Hon Lady Justice Arden at the Court of Appeal.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).
James Glover 01273 662098
Matt Adams 01273 662086